Recently MNF has noticed a decline in their overall profit margin. Jake and Blake were surprised by this decline because their business seemed to be booming. In an effort to better understand what could be happening, Blake asked the accounting staff to prepare a report to provide evidence as to why the profit margin was dropping. After close analysis, the report showed that supply costs had increased substantially on a per-unit basis since expanding MNF’s furniture offerings and vendor relations. After doing a market analysis Blake and Jake realized that market prices for lumber, their raw material, were not increasing, and concluded that something strange was afoot in the growing business of MNF. Blake and Jake are on the paranoid side of life, so they decided that they would conduct fraud detection techniques by first using an approach they learned about in business school, Benford’s Law.
Jake and Blake knew that, according to Benford’s Law, they could expect the first digit of the invoice totals being charged by their eight vendors to approximate the distribution of the Benford’s Law probability values. Despite the relatively small amount of data they collected for the distribution, it was clear